Jose Mourinho will leave Real Madrid at the end of the season after coming to a mutual agreement with the Spanish club three years before the end of his contract, president Florentino Perez said on Monday.
The Portuguese's imminent departure will add fuel to widespread expectation he is poised to return to former club Chelsea, while Perez confirmed Real had approached Paris St Germain to ask about the availability of Carlo Ancelotti.
"After the talks with our coach Jose Mourinho we have reached the agreement to end the contractual relationship at the end of this season," Perez told a news conference at Real's Bernabeu stadium.
"Both the club and the coach agree that it is the right moment to end this relationship."
He added Mourinho would not be getting a payoff and that although Ancelotti was on the club's list of replacements, he was not the only candidate.
"We have not agreed any pre-contract with any coach. That is a job for the next few days," Perez said. "It is not an issue we will resolve tomorrow."
Mourinho, 50, joined Real after leading Inter Milan to the Champions League title in 2010. He agreed to extend his contract with the Primera Division club to June 2016 in May last year.
Perez had hoped Mourinho, whom he has often referred to as "the best coach in the world", would help the club win the 10th European crown that has eluded them since 2002 and end the dominant run of arch rivals Barcelona.
To help realise his dream, construction magnate Perez splurged more than $513 million of the club's money on players, including a world record $121 million on Mourinho's compatriot Cristiano Ronaldo.
However, after three seasons Mourinho's haul of major titles is one Primera Division and one King's Cup, a hugely disappointing return for the world's richest club by income.
The last Real coach to be given three terms or more at the helm, current Spain boss Vicente del Bosque between 1999 and 2003, won Primera Division in 2001 and 2003 and Champions League titles in 2000 and 2002.
This season, which Mourinho last week called "a disaster", Real failed to defend their domestic league crown as Barca eased to a fourth title in five years.
Real were eliminated in the semi-finals of the Champions League for a third successive season and lost to city neighbours Atletico Madrid in the King's Cup final.
The combative and outspoken Mourinho has also alienated many traditional Real supporters with his treatment of club captain and goalkeeper Iker Casillas.
Casillas, a hero to many fans and a fixture in goal for more than a decade, has barely played since returning from a broken hand, Mourinho preferring Diego Lopez who was brought in from Sevilla as cover in January.
Divisions in the dressing room burst into the open in recent weeks when Mourinho's compatriot Pepe publicly defended Casillas and was left out of subsequent games, including last week's 2-1 defeat by Atletico in the Cup final.
Mourinho has been whistled by a significant section of the Bernabeu crowd when his name has been read out before recent matches, while Casillas has been roundly cheered.
Real's poor season reached a low point in the Cup final when Mourinho was dismissed from the bench in the second half of regular time for protesting a decision by the referee and top scorer Cristiano Ronaldo was later shown a straight red card for kicking out at an opponent.